Is Nanalysis Scientific (CVE:NSCI) Weighed On By Its Debt Load?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, Nanalysis Scientific Corp. (CVE:NSCI) does carry debt. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Nanalysis Scientific

What Is Nanalysis Scientific's Net Debt?

As you can see below, at the end of March 2022, Nanalysis Scientific had CA$7.49m of debt, up from CA$3.96m a year ago. Click the image for more detail. However, it does have CA$19.2m in cash offsetting this, leading to net cash of CA$11.7m.

How Strong Is Nanalysis Scientific's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Nanalysis Scientific had liabilities of CA$15.0m due within 12 months and liabilities of CA$8.83m due beyond that. On the other hand, it had cash of CA$19.2m and CA$8.15m worth of receivables due within a year. So it actually has CA$3.47m more liquid assets than total liabilities.

This surplus suggests that Nanalysis Scientific has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Nanalysis Scientific boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Nanalysis Scientific's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Nanalysis Scientific wasn't profitable at an EBIT level, but managed to grow its revenue by 90%, to CA$18m. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Nanalysis Scientific?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year Nanalysis Scientific had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of CA$7.4m and booked a CA$2.8m accounting loss. But at least it has CA$11.7m on the balance sheet to spend on growth, near-term. With very solid revenue growth in the last year, Nanalysis Scientific may be on a path to profitability. Pre-profit companies are often risky, but they can also offer great rewards. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 3 warning signs for Nanalysis Scientific you should be aware of, and 1 of them makes us a bit uncomfortable.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.